Sound Salvation

Barely out of its infancy, Net radio may already be dead.
Can a grassroots effort keep the broadest broadband alive?

By Richard Koman

Every time she puts on the radioThere was nothin' goin' down at all, not at allThen, one fine mornin', she puts on a New York stationYou know, she couldn't believe what she heard at allShe started shakin' to that fine, fine musicYou know, her life was saved by rock 'n' roll
--Lou Reed, "Rock 'n' Roll"

For Bill Goldsmith, it's always been about the music. A longtime radio pro whose roots go back to the underground radio era of the late '60s and early '70s, Goldsmith has worked in Monterey, Hawaii and Boston. In the 1990s, when Internet radio first started, he was working at KPIG near Santa Cruz. "We saw ourselves as the last commercial radio in the state that didn't suck," he recalls. Now Goldsmith and his wife, Rebecca, are owners of an online radio station that decidedly doesn't suck.

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"I had this little aha moment," Goldsmith says, recounting how he left traditional radio for the web. "'Wait a second, I can start my own station.' For the first time in my whole career to not have to work for someone whose one and only goal is to make as much money as possible. That's what radio has become all about--selling as many commercials as possible for as much money as possible. That's not what I got into radio for. I got into radio because I love radio and I love music. My first and foremost concern throughout my career was putting out the best programming I could for our listeners. And that attitude had just totally fallen by the wayside by the 1990s."

Today, the Goldsmiths are living their
dream of working for themselves in radio,
playing their favorite music over the Internet at RadioParadise.com from their home in Paradise, Calif., Goldsmith says that they put in about two years of "really hard work" and have been supporting themselves through listener donations and merchandise sales for the last five years.

"At this point, we have a pretty decent-sized audience for an independent Internet radio station, and we make a decent living doing something we love," he says. "We have 100,000 listeners and a core group of 25,000 to 30,000 people who listen to us everyday."

Goldsmith's world--and that of every other net radio broadcaster--changed on March 2, when the Copyright Royalties Board (CRB) altered Internet radio's royalty structure. The new ruling, which goes into effect July 15, changes how Internet radio stations pay performance royalties. Instead of paying a percentage of their gross royalties, as satellite and cable radio broadcasters do, webcasters
will now have to pay a small fee per listener and per song.

The new royalty structure--which was proposed by SoundExchange, the organization that collects performance royalties and distributes them to record labels and artists for a roughly 15 percent take off the top--would raise per-stream performance royalties from .07 cents per stream in 2005 to .19 cents in 2010, tripling the monies that larger webcasters pay. More importantly for small webcasters, the new rules do away with an option to pay a percentage of gross revenue. That effectively increases the rate webcasters like Goldsmith pays by a stunning 1,200 percent.

"Every time one person hears one song on our station, we owe a very small amount of money to the copyright holders," Goldsmith explains. "The problem is those small amounts of money add up to a really, really large amount of money. More money, in fact, than we bring in in gross revenue. And that statement is true for every Internet radio station in the country, large and small, no matter how they're supporting themselves."

Webcasters, artists and Internet companies quickly banded together to
form the SaveNetRadio coalition
(www.savenetradio.org). Despite their efforts, the courts upheld the decision, so SaveNetRadio turned its sights to Congress. Just six weeks after the CRB's 120-page decision was released, a bill was introduced in the House to repeal the new rates. Last week, a companion bill was introduced in the Senate by Ron Wyden, D-Ore., and Sam Brownback, R-Kan., proof that the effort to repeal the rates is a bipartisan effort. The House bill had 79 cosponsors as of press time, including Lynn Woolsey.

Even Sen. Diane Feinstein, who has supported Hollywood on virtually every issue that has come to Congress, had her staff meet with Goldsmith on a recent lobbying trip to Washington. Goldsmith says that a Feinstein staffer told him he was willing to meet with webcasters "because of all the calls and letters they've received." Still, Goldsmith doesn't look for Feinstein to support the Internet Radio Equality Act. "Feinstein gets a lot of money from the RIAA [Recording Industry Association of America], and she has historically been one of their champions. She's on the Judiciary where this bill is going to fall. That's the really tough row to hoe. We're just hoping that the negative publicity on this will just be a little too much."

Pandora Unboxed

Pandora (www.pandora.com) is not just another net radio station. It's an interactive site that lets users create their own customized radio stations by getting recommendations for new music based on music they already like. It combines user ratings with the Music Genome Project, in which every track is identified by characteristics like "great lyrics" and "a good dose of acoustic guitar pickin'." Throw in social networking, the ability to search for other users' stations, and pages that let you buy any album via Amazon or track via iTunes, and you have an idea of the value that Pandora provides not just to users but to artists and labels looking for promotion.

"Internet radio is unbounded, unconstrained--it's like an explosion of musical diversity," says founder Tim Westergren. "I'm a musician myself. I spent 10 years playing in rock bands, and my band is on Pandora. It's the only radio I've ever been played on and that is true for 35,000 of the 37,000 artists that we do play. I think it's a godsend for musicians, especially the independent artists who don't participate in the mainstream broadcast structure that exists right now."

Pandora and Internet radio, although still nascent, already represent a fully formed art-and-commerce infrastructure, Westergren says. "What you're going to see and is already happening is that this evolving class of musicians are connecting through these kinds of systems without having to spend large amounts of money, not buying radio time or placement in records stores--and are building enough audience to make a living. I think that's really exciting.

"I think Internet radio is the future of the whole thing. I think it will become radio, and radio will become personalized; it will reflect your own tastes. The Internet has this immediate connection to the artist--concerts or reviews or connecting with the fanbase. It's the ideal mechanism to go from listener to fan. There's a whole ecosystem that's waiting to grow up around this."

But the ecosystem will not grow up if the new rates go into effect.

"This completely breaks the business model for us and anyone else trying to make a business of Internet radio. If these stick, we're done," Westergren says flatly.

Yet he is hopeful that the bills in Congress will in fact pass. "If you asked me about the bill a couple weeks ago, I'd have had a much more negative answer, but as an observer of this over the last few weeks, it's hard for me to imagine given the uproar--and the fact it's coming not only from listeners but from musicians as well as webcasters--it's hard to imagine. How can you just ignore that? I mean, we do live in a time where other things are being ignored but, sadly, this is something people are actually calling their congressman about."

Audio Leeches?

The way SoundExchange tells this story, the new, higher royalties are required to adequately compensate artists for their creative output. Somewhere in the musty history of the recording industry, terrestrial radio got itself exempted from performance royalties, although stations still pay composer royalties. But fresh off the experience of Napster and illegal downloading, the recording industry seems to regard Internet radio--and satellite radio and cable radio--not as music promoters but as leeches.

"Viable, financially profitable webcasters seem to feel they should be able to play music and make a healthy profit without fairly compensating performers and record labels. . . . SoundExchange collects and distributes royalties due artists and labels when their music is webcast and serves as an advocate for these hard-working individuals who far too often are being left out of the equation," SoundExchange executive director John Simpson recently wrote in BusinessWeek.

The Internet Radio Equality Act, he argued, would "provide large commercial Webcasters with an estimated annual windfall of $10 million or more that would otherwise be paid to artists and labels."

The argument that the rate hike helps artists is deeply offensive to Laurie Joulie, an artist/promoter who represents the Roots Music Association on the SaveNetRadio campaign. "That's totally ludicrous. If webcasters are shutting down, that means less music is getting heard and no royalties are getting paid. No coalition member has ever said they don't want to pay royalty rates; what they want to pay is what's fair and what will keep the business existing so they can play the music, so they can pay royalties."

In a special bonus for SoundExchange, the new royalty rates are retroactive to the beginning of 2006. That means that when the first bill comes due on July 15, webcasters will be required to pay 18 months worth of extra royalties very soon. "They're bankrupt on day one," Joulie says. An artist she was promoting recently finished his CD just as the March 2 decision was announced. "He had web stations waiting for his new release, and when we started to send it out, we got a number of replies saying, 'Don't bother, I'm closing down.'"

Married to the money?
Decemberists' bass player Nate Query agrees that royalties are nice,
but stresses that exposure through Net radio is more important.

Put Up a Parking Lot

For independent artists, Net radio is more than a cool application. It's an alternative music infrastructure, the only way most of them have to get their music heard, to build a fan base, to build attendance at shows, to sell music.

"The independent artists are the ones who have really nurtured and fostered this whole industry," Joulie says. "I think it's growing and it's effective, particularly because of its diversity. People want to hear what's new. There are a lot of studies that show that the majority of people are discovering new music via webcasting. Independent artists can get a foot in the door because there's so much out there. It gives them the world basically, in terms of promotion, right at their fingertips. We're not just talking web radio; we're talking MySpace and websites and download sites, everything. It's made it affordable and accessible, and it's been effective for them.

"While mainstream artists were concentrating on getting major distribution to Wal-Mart and mainstream radio airplay, it was the independent artists who were making this whole Internet industry grow--and it's worked for them. And now that it's growing and having such an impact, it seems kind of ironic that they want to seemingly destroy the infrastructure so that it's weighted towards more mainstream artists again. It's kind of like they want to tear down paradise and put up a parking lot. How many flowers grow in cement, you know?"

Don't artists want those extra royalties? Nate Query, bass player for the Decemberists, a Portland-born band that relocated to San Francisco recently and signed with Capitol, said royalties are important, but they don't outweigh the promotional benefit of Net radio.

"I think it's important for Internet radio, like all radio, to pay royalties. It seems like the recent decision from the Copyright Royalty Board is a bit inappropriate for the role Internet radio plays," Query says. "It's such an important part of how artists reach fans, especially bands that aren't particularly commercial. It's really important for jazz and for indie bands, like we were a few years ago.

"Even if we get triple our royalties--and royalties are an important piece for us--I can't imagine that would make up for the number of people who wouldn't hear about us and wouldn't come to our shows or buy our CDs."

The Decemberists started in 2000, just as Internet radio was starting to get going, and Query says it made a big impact on the band's success. "KXP in Portland in particular was huge. They're a regular radio station but they webcast their entire broadcast. That was a big way for people to learn about the Decemberists early on."

Calobo, Query's first professional band in the mid-'90s, "just toured as much as we could and tried to get press. Getting any kind of radio was basically impossible. Maybe in Seattle and Portland a few stations played us, but now it just seems like it's a lot easier for people who don't have super-mainstream tastes to find music they're excited about.

"Even now, the Decemberists do OK on commercial radio but not great. KFOG actually plays us a little bit in the Bay Area with the new record, but with the previous record, there's no way. Internet radio really equals the playing field for small bands with limited resources. People on Internet radio are willing to play something that hasn't been proven yet, and with commercial radio, it's exactly the opposite."

Control & Rebellion

The history of radio is a dance between control and rebellion. Radio exploded in the early 1920s with the number of stations zooming in number from just eight in 1921 to 564 the very next year. "Colleges, churches, newspapers, department stores, radio manufacturers, hundreds of enterprising individuals and even stockyards started their own stations. Jazz bands, poets, starlets and elephants broadcast live in a rush of largely unrehearsed programming," explain Gene Fowler and Bill Crawford in their book, Border Radio. By the 1930s, the government stepped in, corporations were formed and programming was tightly controlled.

In reaction, radio operators in the '30s built huge million-watt transmitters over the border, and country music, evangelizing preachers, healers and charlatans of all sorts, and eventually Wolfman Jack, "blasted like a blue northern across the American airwaves," Fowler and Crawford write.

After rock 'n' roll was safely appropriated by record companies and networks, radio got another blast of rebellion with the birth of FM and the counterculture of the 1960s and '70s. The free-form radio of the era was rubbed out in the age of media consolidation and formatted programming.

After decades of corporate control, Internet radio's growth represents yet another cycle of freedom in the history of broadcasting. Viewed in this context, the royalty hike can be seen as a cynical attempt to destroy independent programming and leave only major corporations to serve up streaming radio.

Here's how it would work: Internet radio doesn't have to pay these statutory rates; broadcasters can negotiate directly with the labels to do direct licensing deals. Unlike the royalties SoundExchange collects, which are split between copyright holders (labels) and artists, direct license payments go completely to the labels. Payments to artists would depend on contracts with the labels--"typically single-digit percentages of revenue after recoupment, but the artist is really left out in the cold," says Pandora's Westergren.

In other words, no independent net radio and no infrastructure for independent artists and small labels to build a business, just major corporations who are fundamentally interested in making a buck. In other words, says Radio Paradise's Goldsmith, a return to boring, formatted, label-driven radio.

"There is one kind of Internet radio station that could theoretically survive under the new royalty rate, " he says, "and that would be a station that played a very tight playlist of nothing but hit records and focused a lot of energy and attention on selling as many ads as possible. In other words, you can survive if you treated your Internet station very much like an FM station and programmed it like an FM station and if most of your competition went away."

Pandora--as well as Yahoo and AOL--could do direct licensing deals, Westergren says, but he won't. "Direct licenses are really anathema to the diversity and freedom of Internet radio. You're going to be talking about promotion monkey business all over again. 'I'll license it to you if you play my songs more often, if you give me preferred placement on your home page, you know, blah blah blah.' Then we're back to square one again."

Why, one might wonder, are the grassroots ringing their senators' and representatives' phones over something as seemingly trivial as online music, when the war in Iraq continues to rage, when the genocide in Darfur shows no sign of ending, when climate change threatens to turn San Francisco into a sandy little island? It's not, it turns out, trivial at all; it has to do with the culture and texture of our lives.

"I think people want control," says Laurie Joulie. "I think they see in all facets of their lives that corporations have had too much control over what they watch on TV, what they hear on the radio, the politics of the country.